Weekend Links: 24th April 2010

The Goldman story has been topping the charts for the last few days, and I have a hunch that we will hear a lot more about their internal emails, which were released today.

Talking Across Cultures (With or without profanity) @ HBR: This is a great article that will be especially helpful for people who work with others from varied backgrounds.

Currency futures: An example of how India changes @ Ajay Shah: Ajay Shah writes about currency futures often, and this is a post about how the volumes in this market have grown, and how this market has evolved over the years.

Monty Hall Economics @ The Psy – Fi Blog: A fun read about the Monty Hall problem, and how probability and behavior influence our decision making.

And now, here is a funny little Monty Python video for you.

RBI to Banks: Rollover Fixed Deposits Without Penalties: If you have fixed deposits in India, then this recent change will impact you, and going through this post will help you understand the impact.

Why ULIP is a bad investment @ Value Research: Dhirendra Kumar looks at the reasons ULIP proponents gives on why ULIPs are a good idea, and then dissects those reasons to see if the argument holds or not.

Heaters: Funny post by Scott Adams about his experience with installing outdoor heaters.

How shopping lists can save you money by The Smarter Wallet

On why I am not getting a iPad anytime soon

I saw this question about who was going to buy an iPad at The Digerati Life today, and I thought I’d respond to that question with a little post of my own reasons on why I am not going to get one.

Apart from the obvious reason of not having ~500 $$$ to spare – there are a few others as well.  So here goes.

1. I couldn’t type on it: I went to Best Buy last weekend, and tried out one for about ten minutes or so. I wanted to see if typing on it was like typing on a regular keyboard or not, and I found that it wasn’t. I don’t want a device on which I can’t type like I normally do. If typing on it was really easy – I would have still considered it, but that is not the case. Though it is much better than typing on the iPhone – it still doesn’t match a real keyboard, and that was something I really wanted.

2. I already have a Kindle: If I can’t type on it then the next best use for me is to read books, but I already have the Kindle, and that works fine for me as far as a book reader is concerned, so I don’t want another book reader.

3. You can’t run multiple applications: My task-bar is always littered with several open things and that’s the way I function. But you can’t do that on a iPad, and that was another big let down.

When I thought about these three things, – it became really clear that if I were to buy this – it would just be another fancy toy that I will have no real use for.

Besides this – I am not much of an early adopter of anything I have to pay for. I tried out MS Office 2010 Beta, and regularly try out Google Beta products, but all of those are free, so there is no real risk of losing out on anything.

I know that the display is great and I can certainly understand why a lot of people really love their iPads, but as far as I am concerned it is more fun watching it getting blended than shelling out cash to get one.

Can I buy gold coins at the post office?

A few days ago I wrote about buying gold coins in India, and in that post I wrote about banks selling gold coins. What I didn’t know at the time was that even post offices have started selling gold coins in India!

The post office sells 24 carat gold coins of the denominations of 0.5 grams, 1 grams, 5 grams and 8 grams. Right now, this service is quite limited, and not every post office sells gold coins.

Buy gold coins from the post office
Buy gold coins from post office

In fact this option is available only to people living in the following cities:

  • Chennai
  • Trichy
  • Madurai
  • Coimbatore
  • Salem
  • Delhi
  • Ahmedabad
  • Surat
  • Vadodara
  • Pune
  • Nagpur
  • Nashik
  • Mumbai

This link has a list of all the post offices within these cities that sell gold coins. I read somewhere that post offices in Jharkhand have also started selling gold coins, but didn’t find them in the postal department’s website.

There are several similarities in buying gold coins from the post office and buying them from a bank; for one – if you are buying gold coins worth more than Rs.50,000 – you will have to furnish a copy of your PAN card. For another – you will pay a certain premium because the post office says that it charges a commission of 4% on the gold coins. However, this premium might still be less than the one charged at a bank.

If you are looking to buy gold coins – then this opens up one more option for you – it might not be the cheapest option, but it is probably cheaper than buying from a bank, and offers much of the same confidence.

Image by Motoyen

Talwalkars IPO

Talwalkars runs several gyms and a lot of you might know them as the premium gym people. They are coming out with an IPO that opens tomorrow and closes on April 23rd. The price band has been set between Rs. 123 and Rs. 128, and the issue has been graded 3 out of 5 by CARE.

What is interesting about the issue price is that Talwalkars has issued shares in the last 12 months, which is lower than this price.

In October 2009 – they issued 291,339 shares at Rs. 635 each. Before you get too excited about getting something worth 635 in 128, know that they issued bonus shares – 7:1 in Nov 2009, and that means that the effective price is just Rs. 79.375, not Rs.635.

I am curious to know why they issued shares at a higher price and then gave out a bonus in about a month, and also if the people who were subscribing to these shares at Rs.625 knew that a bonus was coming in a month. If anyone knows the answer please leave a comment.

On to the business itself – Talwalkars own and operate gyms in India – in a market that is largely dominated by unorganized sector – Talkwalkars has established a brand name for themselves, and people associate them with a premium gym. They have been in the gym business for a long time now, and the first gym was set up by the late Mr. Vishnu Talwalkar in 1932 in Mumbai. Currently, Talwalkars operate 58 health clubs in 28 cities with 55,000 members.  The chain has been growing of late with revenues of Rs. 594.22 million in 2009, Rs. 384.98 million in 2008, Rs.222.88 million in 2007,  and Rs. 102.54 million in 2006. The company has turned in a profit for all those years too, with Rs. 56.87 million last year, Rs. 45.17 million in 2008, Rs.10.94 million in 2007 and Rs.4.20 million in 2006.

The diluted EPS for the year ended March 31, 2009 was Rs. 3.61, and based on that the P/E multiple comes out between 34.07 and 35.46.  That’s a bit on the higher side, and these numbers are pulled from the prospectus and don’t take into account the new shares that will be issued, and how they will lower the EPS going forward.

Object of the Talwalkar IPO

Talwalkars is coming out with this IPO to raise money to repay their existing debts, and fund future expansion. They have earmarked Rs.502.20 million to fund expansion, and Rs. 205.92 million to repay existing debt. They want to add 27 health clubs by the end of 2011, and these IPO proceeds will help in that.

What caught my eye was that they were raising these funds to pay off unsecured debts, even when the balance sheet shows that they have secured loans of Rs.509.28 million as on March 31 2009, as against unsecured loans of Rs.303.34 million on the same date.

The fact that most of these unsecured loans are granted to the company by promoter groups goes a long way in explaining this action.

These were some interesting things that caught my eye while looking at the Talwalkar IPO, and will hopefully help you make a final decision when you consider this IPO.

Which is the best gold ETF in India?

Update: I have done a more recent comparison on gold ETFs and that data can be found here. The methodology is the same which you can read there as well, but reading this post gives a good perspective on how this space has evolved.  Updated Article. 

This question keeps popping up in emails and comments from time to time, and I thought I’d address this with a post. Let me begin this post by saying that this is just my way of deciding which is the best gold ETF in India, and you are free to poke holes in this methodology, or even reject it outright, but if I were to invest in a gold ETF – this is the way I would go about it.

First off – I’d compare the expense ratios of all existing Indian gold ETFs, and see which are the ones with the lower expenses. I have already done that research earlier on this blog, and know that right now the Gold BeeS ETF from Benchmark Funds has the lowest expense ratio of 1%. Quantum Funds comes second with 1.25%. All the other funds charge higher expenses. The lower the expenses – the better it is because it leaves more on the table for investors.

Expenses alone are not enough for me because I want my investment to be liquid, and need the fund to have good volumes too. I went to the NSE website and gathered the volume data for all gold ETFs for the last month or so. I am presenting you yesterday’s volume data of all gold ETFs here. I am presenting just one day’s worth of data because that is pretty much representative of the overall volumes and is easier to read.

Gold ETF Volumes in India
Gold ETF Volumes in India

As you can see from the image – Gold BeeS, which has the lowest expenses also has the highest volume, and by a large margin too.

That does it for me – and if I had to invest in a Gold ETF – it would be this.

Keep in mind though that this is just my opinion and not expert advice tailored to your investing situation. Also bear in mind that I am not going to invest in this ETF because I am not looking at investing in gold right now, and even if I was – I would probably go for the more direct option of buying gold coins.

Update: I have done a more recent comparison on gold ETFs and that data can be found here. 

What should I do if I lose my share certificate?

Although most shares are in dematerialized form these days – there are still some investors who have share certificates from the pre – demat era.

If you have not dematerialized your shares yet – you should do it as soon as possible because that eliminates a lot of hassles  – which can range from selling the shares to replacing the share certificates if you lose them.

Lost Share Certificate
Lost and Found

A lost share certificate can mean a lot of trouble, and I think most small investors will not take the trouble to replace a lost share certificate because of the cumbersome process involved.

If you lose a share certificate then you have to notify the company and furnish necessary documentation in order for them to give you a duplicate. I received an email inquiring about this, and that’s how I started looking for information about it.

So far, whatever I found indicates that you need to file an FIR with the police when you lose the share certificate, get an indemnity bond, file an affidavit, and also take out an ad in a newspaper indicating that you have lost the shares. If you do all these things, and no one refutes the claim – your company will issue you duplicate share certificate.

This process sounds really cumbersome, and I don’t know how many small investors would like to go this route. I have not found an alternate to this, but if anyone knows a better way – please share it here.

Also, if you want to get a quick understanding of this process then I found this Dabur link to be the best source for this type of information.

Image by Lodig

Silver ETF in India

Silver ETF in India
Silver ETF in India

Yesterday I wrote about buying gold coins, and received an email from a reader asking whether there is any way of investing in silver without buying physical silver – like a silver ETF or a silver mutual fund.

I know there are plenty of silver ETFs in the US, and I have even created a list of silver ETFs in the past, but I was not aware of any silver ETFs available to Indian investors.

I dug up a little and found that although Benchmark funds had filed a prospectus for a silver ETF in 2008 – that fund never actually came to existence. A quick glance of the prospectus shows that even this ETF didn’t actually plan to buy physical silver, but invest in other overseas ETFs or mutual funds that were invested in silver. So, in that sense – it would not have been a very direct way of investing in silver.

I couldn’t find any mutual fund that invests in silver either, and I believe that there is no silver ETF or silver mutual fund in India at this time.

If you are interested in silver, then right now the best bet for you is buying physical silver, although storage of physical silver might become an issue as your holdings grow.

The next best option is probably engaging in commodity trading and trade silver, but this is not something I have done personally, and I have no knowledge of it.

If any of you know a good way to take a position in silver – please do share with the rest of the community here.

Image by Tim Ellis

How to buy gold coins in India?

I have written about investing in gold through gold ETFs, and gold monthly income plans in the past, but there is a more direct way to invest in gold, and that is by buying gold coins. I use the word direct because you buy physical gold, and don’t have to pay fees to the middle-man, thereby eliminating at least one layer in between.

The flip – side is that you will have to store physical gold with you, but most of you would have bank lockers to store jewelery anyway.

Here are a few things you should know about buying gold coins in India:

1. Reputed banks sell gold coins: The most important thing to me is that reputed banks like SBI also sell gold coins, and that reduces the chances of fraud, and someone selling you something which is of less purity than they claim. A lot of banks have entered this space, and they sell gold coins through their branches. Not every branch will sell you gold coins, so you need to go to the bank’s website and find out the closest branch that will do so.

2. Different sizes: Gold coins are available in different sizes, so you can buy the ones that suits your needs the most. The usual sizes are coins of 2, 4, 5, 8, 10, 20 and 50 grams. The coins are 24 carats, and the banks guarantee their purity too.

3. PAN needed if you are buying gold coins worth more than Rs.50,000: If you plan to buy gold coins worth more than Rs.50,000 then the bank will ask you for your PAN details. I don’t think a jeweler will ask for similar documentation, and that might be one reason to go to a jeweler to buy a gold coin.

4. Banks won’t buy – back your gold coin: I have not seen any banks that you can sell your gold coins to. They are happy to sell you their gold coins, but you can’t go to them and sell it back to them. You will have to sell the gold coins to the jeweler, and this is probably another reason for buying gold coins from jewelers in the first place.

5. You might pay a premium for buying gold from a bank: Now, I started off extolling the virtues of buying gold coins from reputed banks, and I will end this post by mentioning that if you compare prices between your local jeweler and some banks – you might find a difference. There will be a difference even when they guarantee the same purity. A lot of people think that this premium is worth it because the price is higher when you go to sell the gold, but that is not always true. You don’t get this premium while selling off your gold coin. In effect, buying gold coins from your jeweler might turn out to be cheaper than buying it from a bank. It is up to you to decide whether the difference in price is worth it to you or not.

These were just some points that you should keep in mind while buying gold coins – I am going to write more about this topic in the future because a lot of people are interested in this, and would love to hear if any of you have had any experience with buying gold coins.

SEBI – IRDA spat

By now most of you would be aware of the SEBI – IRDA spat about ULIPs that has been going on since the past 4 days. The back-story is that SEBI banned issue of all new ULIPs from 14 insurance companies stating that they have not registered their product with SEBI, so they can’t issue new ULIPs.

The next day – IRDA sent out a notice stating that insurance companies can continue business as usual, as they don’t fall under SEBI jurisdiction.

The finance minister intervened yesterday, and the ban on ULIPs was lifted. All this is interesting on its own, but a particular statistic on Business Standard really caught my eye today.

The piece is about why SEBI feels the need to regulate ULIPs, and lists out a development that happened a few months ago.

A few months ago – SEBI had banned entry loads on mutual funds, and due to that the sales of mutual funds are getting hurt severely. Agents have lost interest in pushing mutual funds, and they were pushing insurance products instead. But, here is the part from the article that got my attention:

According to distributors, Ulips earn 15-20 per cent upfront commission on each scheme sold, while MF schemes yield a measly 0.5-1 per cent. So, distributors have started luring MF investors towards Ulips, resulting in good growth for insurance companies.

15 – 20% is a bit steep – don’t  you think?

Investors need to realize that this money is going to come from what could have been their profit, or even capital (if the fund makes a loss).

Normally, a higher price means a higher quality, but this is not always the case with mutual funds, ETFs, or ULIPs. If you are being charged a steep price – there should be clear evidence that you are getting a better product. If not, then you are better off with low cost index funds and term insurance.